Last week, the Court of Appeal handed down its much anticipated decision in what has become known as the case of the ‘400 club’. It had been asked to consider whether a defendant is entitled to recovery of costs paid to the claimant under stage 1 of the original Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the RTA protocol) if the claimant failed to pursue the claim.
The claim and appeal relate solely to the original RTA protocol which came into effect on 30 April 2010 prior to its amendment on 31 July 2013 but was significant as insurers were looking to recover in respect of a raft of meritless claims abandoned between 2010 and 2013.
The claim arose from three materially identical road traffic accident claims which were brought through the RTA protocol. In each case, the defendant insurers admitted liability at stage 1 and paid costs of £400. However the claimants took no further action and the claims became statute barred.
The defendant insurers commenced proceedings to recover the £400 stage 1 costs paid. They argued that the protocol itself allowed repayment if the claims were not pursued. At first instance, the court found in favour of the defendants agreeing that the costs could be recovered on grounds that:
- the protocol was later amended in 2013 to the effect that stage 1 costs are now only payable once the claimant has submitted their stage 2 settlement pack; and
- CPR 44.2(a) includes the general principle that the unsuccessful party should pay the costs of the successful party. In the absence of any award or payment of damages then the claimant could not be considered successful, even if liability was admitted.
The claimant solicitors appealed, supported by the Law Society and the Association of Personal Injury Lawyers (APIL). The appeal argued that:
- There was no express provision for repayment of stage 1 costs and it was wrong to imply that right; and
- The claimants’ solicitor had received the stage 1 costs pursuant to their retainer with the claimants. As such, it was the claimants who were entitled to their costs and there was no basis on which to order the claimants’ solicitor to repay this.
The Court of Appeal agreed with the first ground of appeal and therefore considered that it did not need to rule on the second ground. It unanimously allowed the appeal on the basis that:
- The protocol is clear, detailed and precise, and the court should be slow to imply terms. Those drafting the protocol demonstrated clear awareness of the concept of interim payments on account of damages but made no similar provision for interim payments relating to costs.
- The express aim of the protocol is for the claimant’s legal representative to receive the relevant fixed costs at the end of each stage regardless of what happens at a later stage.
- It cannot be conceived that the stage 1 costs should be considered an interim payment on account/conditional payment, as these stages are pursued before any court proceedings, which may give rise to a power/discretion by the court to assess costs, are commenced.
- There are many legitimate reasons why the claim may not proceed past stage 1. It would be contrary to the overall purpose of the protocol to construe it in such a way as to encourage parties to come to court to resolve a dispute over entitlement to a sum as little as £400 where the court would not have otherwise been concerned with the claim.
- The court’s previous reliance upon CPR 44.2(a) was misplaced. Stages 1 and 2 operate prior to, and with the view to avoiding, court proceedings and as such there will be no litigation winners or losers.
The decision is a blow for defendant insurers who were awaiting the decision to seek recovery of stage 1 costs paid in abandoned claims between 2010 and 2013. In the leading judgment, Lord Justice Briggs considered the suggestion that unscrupulous claimant solicitors were encouraged to pursue meritless claims simply to receive the stage 1 costs. However, there was no evidence before the court of systematic abuse of this kind. Any potential for continuing abuse had been closed off by the 2013 protocol amendments.